3 minIncreasing signs of a slowdown in the US economy
Guy Wagner Global economic growth remains at a low level. Even if the lead in economic growth in absolute terms still lies on the other side of the Atlantic, the dynamics between the European and American economies now appear to be diverging, note Guy Wagner and his team in their latest monthly market report "Highlights".
“In fact, several economic indicators point to a slight upturn in the eurozone economy, while there are increasing signs of a slowdown in the US,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. “The economic surprise indicators calculated by Bloomberg and Citigroup even fell into negative territory for the first time in 15 months.” In China, economic indicators are still struggling to pick up significantly, as the deep crisis in the real estate sector is having a lasting negative impact on household sentiment. Although further support measures have been announced, these still do not appear to be able to trigger the hoped-for upturn. In Japan, Gross domestic product fell by 2% on an annualized basis in the first quarter, mainly due to private consumption, which continued to be impacted by the decline in real incomes.
The probability that key interest rates will remain unchanged is high, even if the general tenor is still that interest rates will probably be lowered in the course of the year. Guy Wagner
The path to the two percent inflation target remains uncertain
Despite moderate inflation on both sides of the Atlantic in 2023, the question remains as to whether and how quickly inflation will continue to move towards the official target of 2%. In the US, the overall inflation rate fell slightly to 3.4% in April. In the eurozone, the overall inflation rate accelerated to 2.6% in May.
Expected key interest rate cut in the eurozone
In the run-up to the Federal Reserve's meeting on 12 June, the various members of the Federal Reserve announced during the month of May that, due to sticky inflation, there was an urgent need to wait for further reassuring signals before initiating a return to an expansionary monetary policy. “The probability that key interest rates will remain unchanged is therefore high, even if the general tenor is still that interest rates will probably be lowered in the course of the year”, estimates the Luxembourgish economist. In the eurozone, on the other hand, the European Central Bank indicated that it was sufficiently confident about moderate inflation to make an initial cut in key interest rates at its meeting on 6 June, without committing itself to this being the start of a cycle of falling interest rates.
Volatility on the bond markets
“Uncertainty about the medium-term development of monetary policy has led to volatility on the bond markets in recent weeks.” After the yield on 10-year US Treasuries rose sharply in April, it fell in May. “European long-term interest rates followed the opposite trend and continued the movement from April.” The 10-year reference rate rose in Germany, France, Italy and Spain.
Stock markets back on the winning side
After a slight correction in April, the stock markets resumed their upward trend in May. In particular, the easing of US bond yields and Nvidia's good quarterly figures gave equities, especially American equities, a boost again. Overall, the MSCI All Country World Index Net Total Return, expressed in euros, rose by 2.5%, returning to its highs from the end of March. “At a sector level, technology, utilities and telecoms were the best performers, while energy and consumer discretionary were the only sectors to fall in the month,” concludes Guy Wagner.
